Locum Tenens Tax Basics 2026: What Every 1099 Physician Needs to Know

Your first year as a locum tenens physician means a tax return that looks nothing like your W-2 days. Quarterly estimated payments, self-employment tax, retirement contributions that are 2x your old plan, deductions you didn't know existed, and entity-selection decisions that can save or cost you $20K+ a year.

Here's a working physician's guide to locum tenens taxes for 2026 — written for clinicians, not CPAs.

The Core Mental Shift

As a W-2 employee, your employer was your tax middleman. They withheld income tax, paid your half of FICA, contributed to your 401(k), and sent you a clean W-2 in January. As a 1099 contractor, you're the middleman — and you have to think about taxes four times a year, not once.

The good news: 1099 status unlocks deduction categories and retirement contribution limits that W-2 employees never see. Done well, your effective tax rate ends up lower than a comparable W-2 physician.

1. Self-Employment Tax (15.3%)

Self-employment tax replaces FICA. The breakdown:

• 12.4% Social Security on net earnings up to the SS wage base ($176,100 in 2026)
• 2.9% Medicare on all net earnings
• 0.9% Additional Medicare on earnings above $200K (single) or $250K (married filing jointly)

Net earnings = gross 1099 income − business expenses. Half of the SE tax (the "employer half" you'd otherwise pay) is deductible from your AGI on Schedule 1 — meaningful for physicians earning $200K+ where it shaves several thousand off taxable income.

Worked example: $400K gross 1099, $50K legitimate business expenses → $350K net earnings × 92.35% (SE tax base adjustment) = $323K SE tax base. SS portion: $176,100 × 12.4% = $21,836. Medicare portion: $323K × 2.9% = $9,367. Additional Medicare: ($323K − $200K) × 0.9% = $1,107. Total SE tax: ~$32,310. Half ($16,155) is deductible from AGI for income-tax purposes.

2. Quarterly Estimated Payments

Federal quarterly due dates for 2026:

• Q1 (Jan-Mar income): due April 15, 2026
• Q2 (Apr-May income): due June 15, 2026
• Q3 (Jun-Aug income): due September 15, 2026
• Q4 (Sep-Dec income): due January 15, 2027

State estimates often have different due dates — check your state's revenue department.

The "safe harbor" rule

You avoid underpayment penalties if you pay either:

• 90% of this year's actual tax liability (hard to estimate accurately), OR
• 100% of last year's total tax (110% if your prior-year AGI was over $150K — which is most physicians)

The "110% of prior year" rule is the practical default. If last year's total tax was $90K, you need $99K paid through estimates and any W-2 withholding by year-end to avoid penalty. Divide by 4 = $24,750 per quarter.

Year-1 locum tenens physicians coming from W-2 employment have a free pass: with $0 prior year self-employment tax, you only need to cover what your W-2 withholding (if any) didn't. Many year-1 contractors over-pay by accident — the underpayment penalty for the year-1 transition is usually negligible.

3. Retirement: Solo 401(k) Beats Everything

This is the biggest financial advantage of 1099 status — and most new locums don't realize how big until they run the numbers.

Why Solo 401(k) usually wins over SEP-IRA

• You can max it out at lower income (the $23,500 employee deferral kicks in regardless of net earnings; SEP requires high net earnings to hit the $69K cap).
• Roth Solo 401(k) is allowed (Roth SEP requires more setup).
• You can take participant loans from a Solo 401(k); not from a SEP.
• Backdoor Roth IRA stays clean. SEP-IRA balances trigger the pro-rata rule that complicates backdoor Roth conversions.

Solo 401(k) plans cost $0 to set up at Fidelity, Schwab, Vanguard, or E*TRADE. Plan must be opened by December 31 to make contributions for that tax year (employee deferrals must also be elected by year-end; employer contributions can be made up to your tax filing deadline including extensions).

4. Deductions You're Probably Missing

The IRS allows deduction of "ordinary and necessary" business expenses. For locum tenens physicians, that's a long list:

Travel + Lodging

Travel to assignments outside your tax home is fully deductible. The IRS standard mileage rate for 2026 is set annually (2025 was $0.70/mile; 2026 will be similar). Air travel, rental cars, hotels, and meals (50% deductible) all qualify. Most locum agencies provide travel + lodging directly — those don't go on your return because they were never your income. But airline tickets you bought yourself, gas to and from the airport, parking, Ubers — those add up.

Lodging away from tax home

If you keep a primary residence at your "tax home" (where you have a regular gig or family home) and travel for assignments, lodging is deductible. The catch: if you're nomadic with no fixed tax home, you don't get to deduct lodging — the IRS treats you as if every assignment IS your tax home.

CME, board exams, license renewals

All deductible. CME courses, board recertification fees, state license renewals (in any state you maintain license for current or future contracts), and DEA registration.

Malpractice insurance

Including tail coverage when you switch assignments. If you pay any portion of malpractice yourself, deduct it.

Health insurance

Self-employed health insurance premiums (medical, dental, vision, qualifying long-term care) are deductible from AGI on Schedule 1 — not as a business expense on Schedule C. The deduction is limited to your net SE earnings, but for most locum physicians that's a non-issue.

Phone, internet, computer

Pro-rated business use. If your phone is 70% business / 30% personal, deduct 70% of the bill.

Home office

If you maintain a dedicated home office space used regularly and exclusively for business (charting between assignments, telehealth, business admin), you can deduct a pro-rata share of rent/mortgage interest, utilities, and depreciation. The simplified method ($5/sq ft up to 300 sq ft = max $1,500) is easier; the actual method can be larger but requires more documentation.

Professional services

CPA fees, attorney fees for contract review, business consulting, bookkeeping software (QuickBooks, Wave), payroll service if you set up an S-corp.

Business expenses you might not think of

• Stethoscope, otoscope, scrubs (if required)
• Medical apps and journal subscriptions
• Licensing/credentialing services (CompHealth, IMLC fee, NPDB self-query)
• Business meals (50% deductible) for networking with other physicians, recruiters, agency reps

5. Entity Selection: Sole Prop vs LLC vs S-Corp

Sole proprietorship (default)

What you are if you do nothing. Income flows through Schedule C. Simplest. Liability protection: none beyond your malpractice insurance.

Single-member LLC

Same tax treatment as sole prop (Schedule C), plus state-level liability protection separating business assets from personal. Costs $50–$500 to form depending on state. For most locum physicians, the LLC adds modest paperwork for marginal benefit. Your malpractice carrier provides the liability protection that matters.

S-Corp election

The big one. You incorporate (S-corp or LLC electing S-corp tax treatment), pay yourself a "reasonable salary" via W-2 from the S-corp, and take the rest as distributions. The W-2 portion is subject to FICA; distributions are NOT subject to SE tax. This is where the math gets meaningful.

Worked example: $500K net 1099 income.

• As sole prop: SE tax on entire $500K (capped at SS wage base for the SS portion). SE tax ≈ $32K + 2.9% Medicare on the rest.
• As S-corp paying yourself a $250K W-2 salary + $250K distribution: FICA on $250K ≈ $19K (still capped at SS wage base). Distribution avoids the 2.9% Medicare entirely. Net SE/FICA tax savings ≈ $7K–$13K/year.

Costs: separate corporate tax return ($800–$2,500 from a CPA), state corp filing fees ($150–$800), payroll service ($600–$1,500/year), and the IRS expects a "reasonable" salary that won't get challenged on audit (usually 50–60% of total comp for physicians is defensible).

Rule of thumb: S-corp election makes sense above ~$250K net 1099 income. Below that, the costs eat the savings. Above $400K, it's almost always worth it.

6. Year-End Tax Checklist

Things to do before December 31:

By October

• Confirm your Solo 401(k) is open at your brokerage (must be open by 12/31 to contribute)
• Project full-year income to size Q4 estimated payment
• Plan any equipment purchases — Section 179 lets you immediately expense up to $1,250,000 of equipment in 2026

December

• Submit final Solo 401(k) employee deferral election (forms or online before 12/31)
• Pay any state estimated tax that lets you deduct it federally on Schedule A (state tax cap is $10K under SALT limits, but partial deductions still help)
• Charitable contributions (for itemizers)
• HSA contribution if you have a high-deductible health plan ($4,300 self / $8,550 family in 2026; $1,000 catch-up at 55+)
• Defer December income to January if you'll be in a lower bracket next year (rare but possible for sabbatical years)

January

• Q4 estimated payment due 1/15
• Solo 401(k) employer contribution can be made up to your filing deadline including extensions (Oct 15 if extended)
• Issue any 1099-NECs to subcontractors you paid $600+

Worth the CPA?

For most locum physicians, yes. Find one who specifically handles physician 1099 returns — they cost $1,500–$3,500 and routinely save 5–10x their fee through proper deduction capture, S-corp planning, and estimated-payment strategy. Generic CPAs miss locum-specific deductions and rarely understand physician retirement vehicles.

Looking for locum assignments? Browse opportunities at freejobpost.co/jobs?employment_type=locum. Need help running the W-2 vs 1099 math for a specific offer? Message an Ava Health recruiter — we'll send you the worksheet.

Related: 1099 vs W-2 Healthcare Offer Comparison, 20-Point Physician Contract Checklist.

This article is general guidance, not tax advice. Tax situations vary; consult a CPA familiar with physician 1099 returns before filing.